NextNav Inc. — FY2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022; it is not a standalone fourth-quarter report. NextNav develops positioning, navigation and timing services, principally Pinnacle, a floor-level altitude service, and TerraPoiNT, a terrestrial GPS alternative. The company reported one operating segment. It acquired French geolocation company Nestwave on October 31, 2022.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $3.9 million | $0.8 million |
| Cost of goods sold | $11.8 million | $18.4 million |
| Operating loss | $65.5 million | $42.4 million |
| Net loss | $40.1 million | $144.7 million |
| Net cash used in operating activities | $37.1 million | $47.9 million |
| Net cash used in investing activities | $15.7 million | $1.3 million |
- Revenue grew 415%, primarily from commercial technology and services contracts. Cost of goods sold exceeded revenue, resulting in a gross loss of approximately $7.9 million.
- Operating expenses totaled $69.5 million, including $26.5 million of stock-based compensation. SG&A rose to $36.9 million from $13.6 million, largely reflecting higher stock compensation, professional services and insurance costs.
- The net loss narrowed substantially, but this did not reflect improved operating profitability: operating loss widened. The year-over-year net loss comparison was materially affected by warrant fair-value movements and lower interest expense after debt repayment. The 2022 warrant adjustment generated $24.7 million of other income; 2021 included $84.3 million of warrant-related expense and $17.8 million of interest expense.
- At December 31, 2022, cash and cash equivalents were $47.2 million and short-term investments were $8.2 million, or $55.4 million combined. The company reported no third-party debt outstanding, an accumulated deficit of $688.5 million and total liabilities of $19.9 million. Operating lease liabilities were $7.8 million.
- Management said cash and marketable securities as of March 30, 2023 were expected to cover working capital and capital expenditure needs, including contractual commitments, for the next 12 months. Longer-term funding may require operating cash flow and/or additional equity or debt financing.
Material changes and notable items
- Revenue increased by $3.2 million year over year, but remained highly concentrated: two customers represented 83% and 10% of FY2022 revenue.
- Operating cash use decreased by $10.8 million, while investing cash use increased to $15.7 million, reflecting marketable securities purchases, network investment, equity-method investments and the Nestwave acquisition.
- Nestwave consideration was reported as $21.6 million net of cash acquired, including cash, common shares and contingent consideration. The acquisition added technology, software and $17.5 million of goodwill; its post-acquisition results were not material for separate disclosure.
- FY2022 stock-based compensation was $26.5 million, up from $1.7 million. The company issued approximately 4.0 million shares at acquisition close and reserved up to approximately 1.1 million additional shares related to Nestwave warrants.
- Accounts receivable rose to $2.2 million from $1.7 million, while deferred revenue fell to $0.1 million from $1.6 million.
Outlook, risks and controls
- No numeric revenue, earnings or cash-flow guidance was provided. Management expects continued losses and higher operating expenses, with investment in research and development and TerraPoiNT expansion. It expects Pinnacle customer ramp-up to support revenue growth, but this is not quantified.
- Management expects macroeconomic and COVID-19-related effects to continue through the remainder of 2023; it also cited tight field-services labor supply and potential network deployment delays or cost increases. Inflation and supply-chain effects had not been significant to results to date, but could become material.
- Key execution risks include customer adoption, competition from free location services, dependence on device platforms and partners, and successful integration of Nestwave technology and LTE/5G capabilities. TerraPoiNT’s hybrid architecture and projected cost savings remain unproven.
- Regulatory risks are significant: FCC renewal of the company’s 900 MHz LMS licenses remained pending, build-out requirements and showings were ongoing, and third-party objections remained pending. Loss or non-renewal of licenses could impair TerraPoiNT expansion.
- AT&T hosts Pinnacle equipment under an agreement expiring in 2026, subject to certain earlier termination rights. The FirstNet distribution agreement had been extended only through January 7, 2024. Dependence on AWS, a limited set of component suppliers, and access to spectrum also creates operating risk.
- The company reported no legal matters expected to have a material adverse effect. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end. The auditor issued an unqualified opinion on the financial statements; it did not provide an internal-control attestation.
Important facts for investors to verify
- Whether revenue growth broadens beyond the two customers that supplied 93% of FY2022 revenue, and whether usage-based customer contracts translate into recurring revenue.
- Cash burn, planned network and R&D spending, and the assumptions underlying management’s 12-month liquidity assessment and longer-term financing plans.
- FCC decisions on license renewal, build-out compliance, waivers and third-party objections, including the status of the April 2023 build-out deadline.
- Progress and cost of integrating Nestwave and deploying the LTE/5G hybrid TerraPoiNT architecture, including whether anticipated capital savings are realized.
- Potential dilution from outstanding warrants, stock awards and acquisition-related share commitments; the filing reported approximately 18.75 million public and private warrants outstanding, generally exercisable at $11.50 per share.